Rising stock prices, growth in external assets and changes in the Bank of Japan’s government bond holdings are identified as factors pushing down the household deposit ratio, while changes in the flow of funds are supporting the shift from saving to investment.
This article seeks to empirically understand the long-term decline in Japan’s household deposit ratio from the perspective of macroeconomic flows of funds. The flow of funds statistics show that the financial assets held by the household sector correspond to the financial liabilities of other sectors, and that deposits rise and fall through credit creation via the banking system.
The denominator of the household deposit ratio is equal to the sum of the household sector’s financial assets, the outstanding net financial liabilities of other sectors and the financial liabilities of the household sector itself. The channels through which deposits are created change depending on the nature of funding by the corporate, government and overseas sectors, while changes in the market value of equities and government bond holdings affect deposit balances.
A breakdown of the household deposit ratio shows that the corporate sector often pushes the ratio higher, while the government and overseas sectors tend to weigh on it. Market-value and other factors do not directly affect household deposit balances themselves, but they move the financial assets that form the denominator. More recently, the corporate sector has had a significant impact, while the overseas sector and market-value factors have acted as downward pressures.
Overall, viewed from a macroeconomic perspective, the shift from saving to investment can be understood as being supported by structural changes in the flow of funds and changes in the holders of government bonds, which have contributed to the decline in the household deposit ratio. Going forward, attention will remain focused on how developments in this macroeconomic structure affect households’ financial asset choices.